Many will know that I serve in a volunteer capacity on the board of the Financial Intermediaries Association (the FIA). I also chair their Financial Planning Sub-committee. The FIA is the trade association, which looks after the interests of the financial intermediary community, their interaction with clients, the industry and the authorities in Southern Africa. In this role, the FIA provided contributions to a recent request for input from the Financial Services Board (FSB).
In preparing our input, I was reminded of one of Sir Winston Churchill’s lesser-known quotes;
"If I had my way, I would write the word “insure” upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever. It is the duty to arrest the ghastly waste, not merely of human happiness, but national health and strength, which follows when, through the death of the breadwinner, the frail boat in which the family are embarked, founders and the women and children and the estates are left to struggle in the dark waters of a friendless world.”
The above statement was made by Sir Winston at a time when there were many people returning to the UK after the war and where the infrastructure was in serious need of restoration; I am sure much to the delight of many insurance salesmen at the time!
One wonders whether the current South African circumstance do not carry similarities. Like post-war Britain, we suffer a serious structural poverty cycle and a degrading infrastructure. Subsequent generations, inherit this poverty of their forebears with little hope, in the main, of a break-in that cycle. Life Insurance and Life Insurers can, as identified by Sir Winston, play an enormous role in the inter-generational wealth creation that is required to break the cycle.
This happens at two levels firstly; In exchange for a relatively modest premium, a breadwinner can ensure that his or her income-generating capability is replaced with capital, thus ensuring that dependents are able to complete their education and prepare themselves for life without a financial overhang to contend with. Where a breadwinner has the foresight, or is cajoled, to effect life insurance, the second generation starts out its life better off, even if slightly, than their parents. Thus the cycle of poverty is broken.
The second role that insurers fill is that they invest the premiums, not required for claims settlement into the economy. This activity contributes to the wealth of a broader society in many ways, including market investments, which either directly place capital in the hands of businesses, which in turn grow employment or indirectly assist in access to capital by lowering the cost of capital overall. In managing the assets emanating from their life book, the insurers are also free to invest outside the areas where investment clients would demand that they invest.
So, using a simple rule of thumb, of securing ten times one’s annual salary in provision for ones loved ones, is an essential component of a well-considered financial plan. Of course, this amount can be reduced by the actual investible capital that has been accumulated up to that point. For those in the role of an employer, it is important to educate, if not provide, perhaps through Group Life, some of this cover for less fortunate staff members.